Process for business' potential sale moves forward

Although interested buyers aren't who he thought they'd be, Charles Evans thinks his business is going to sell - probably, he says, in a September time frame.

I wrote about Evans in April with some fudging to protect confidentiality. Evans, a pseudonym, is willing to share his thoughts and experiences so other entrepreneurs thinking of selling have some information.

The background: Evans is ready to retire. His 17-year old suburban business has 25 employees and is profitable. Evans' original choice, selling to the two-person management team, failed when the team couldn't find financing. No family members want to buy. He met with potential buyers.

Private equity firms - some represented by a squad of people, others by a single representative - have shown the most interest. "That's confirmation to me," Evans says, "that the business has value."

Most of the conversations have focused on the management team. That's what potential buyers are buying. Evans is - or more correctly will be - finished.

Evans and his team prepared and gamed a set of questions they thought might be asked. "The conversations have been about strategy, vision and opportunity," Evans says. "Many of their questions matched the questions we had prepared."

Potential buyers have asked about:

• Recurring revenues.

• Specifics of the management team's plan to increase revenue.

• The team's strategy for attracting new clients - and selling more to current clients.

• Staffing plans, especially as investor funds allow more flexibility.

• Depth, particularly in sales. What happens if the rainmaker leaves?

• Sales and profit projections.

The early meetings have been "touchy-feely," Evans says. "You're trying to sell them. They're trying to sell you. Both sides are looking for a good fit."

Evans' business brokers have been helpful. "They told us to be factual but not to provide too much detail," he says. "They know when to step in."

Evans says the equity firms are looking at a relatively short-term investment, generally five years. They'll buy the business, grow it, then sell. The current management team likely will stay.

To generate initial interest, the broker team sent "a one-page teaser about what a great opportunity the business is," Evans says. The teaser included the company's revenue stream.

Interested parties returned a nondisclosure form. Once that was signed, the brokers sent a power point with more details. The power point essentially "is a sales presentation on the company," Evans says. "There are more details, but the information is not inclusive.

"Make certain the nondisclosure is comprehensive," Evans warns. "Many of the ones I've seen have been pretty wishy-washy. I had our lawyer review the (brokerage's original) agreement before it was sent."

The next step is a letter of intent from still-interested parties laying out the terms of a possible deal. The deal depends on buyer due diligence, yet to be done.

• © 2014 Kendall Communications Inc. Follow Jim Kendall on LinkedIn and Twitter, and at Kendall Communications on Facebook. Write him at Jim@kendallcom.com.